In a Report on Foreign Involvement in the Defence Supply Chain published on 14 February 2021, the UK Defence Committee has made a number of points and recommendations regarding the perceived vulnerability of the UK’s defence supply chain.
While recognising that the UK’s broad range of domestic and international suppliers has brought benefits to its defence industry and wider economy, the Report considers that stronger safeguards around foreign investment are required. It criticises the Ministry of Defence’s “open and agnostic approach” to procurement as leaving the UK defence sector open to potentially hostile foreign investment. Further, the Defence Committee recommends that the UK Government publish a ‘whitelist’ of friendly countries from whom investments should continue, while barring investments in the UK’s defence supply chain from countries falling outside of this list, including China and Russia.
The Report also examined the impact of the UK National Security and Investment Bill (the “Bill“), which once enacted will establish a new UK investment screening regime on national security grounds (see our blog post on the Bill here). The Defence Committee conclude that the Bill will offer greater protection to the UK economy, and that, should the regime be implemented efficiently, “it will have little to no harmful impact on foreign direct investment to the UK defence supply chain, only preventing investment that is undesirable“.
Given that the new regime under the Bill will expressly cover a wide range of transactions involving UK defence sector companies and Government contractors (building on existing national security review powers in the UK Enterprise Act), the Bill is likely in any case to give form to much of the Report’s views. Nonetheless, the Defence Committee’s recommendations add further weight to the shift towards the perceived dangers of undesirable foreign involvement in critical supply chains, which is driving new and updated foreign investment rules across many jurisdictions globally.
